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Find the solutions you need by accessing our extensive portfolio of information, analytics and expertise. The IHS Markit team of subject matter experts, analysts and consultants offers the actionable intelligence you need to make informed decisions.

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Find the solutions you need by accessing our extensive portfolio of information, analytics and expertise. The IHS Markit team of subject matter experts, analysts and consultants offers the actionable intelligence you need to make informed decisions.

American humorist Mark Twain famously dismissed his premature obituary with the quip, "The reports of my death are greatly exaggerated." China's chemical industry, presumed endangered due to the country's lackluster economic growth, appears to be poised for a Twain-style last laugh.

Although GDP growth in China is only 6.8%, the country accounted for more than 30% of the global demand for basic chemicals last year. Demand is growing at nearly 10%, primarily driven by strong consumer spending and product substitution. Together, these conditions are creating a new "normal" for China - one in which manufacturing will continue to drive healthy growth in demand for chemicals.

Growing demand sets the stage for manufacturing success

Several key factors are driving this expansion. Higher consumer demand coupled with rapidly falling chemical prices are encouraging manufacturers to switch to materials that offer superior performance at a lower-than-usual cost. In addition, a sharp decline in the price of primary plastics has caused many manufacturers to replace recycled materials with primary materials.

China is likely to remain the world's most cost-effective manufacturing hub for the foreseeable future. Although the country has experienced a nearly threefold increase in labor costs in the past decade, rising Chinese labor productivity has nearly offset the cost increase.

Even more important, Chinese manufacturing has evolved into a highly complex and deeply integrated business. This integration - which extends from raw material manufacturing through logistics, supply chain, parts manufacturing, assembly, and product distribution and services - offers a sustainable cost advantage, despite escalating labor costs and high utility and taxation rates.

Continued upgrades to the manufacturing sector will allow China to grab market share from Japan, Korea, and Europe for higher-end products, such as digital products, home appliances, heavy machinery, and high-speed rail. Greater economies of scale will also help the country to enjoy cost advantages and continue to lead global demand for various raw materials, including chemicals.

Investment drives a more dynamic, competitive market

Overall profitability has increased for Chinese chemical manufacturers, thanks to low oil prices. Yet not all manufacturers are benefitting equally. Basic chemicals generally performed well in the last year, as did the chemicals used for non-durable consumer products, such as polyethylene, ethylene glycol, polyester, and styrene chains. Chemicals used for infrastructure and durable goods, such as PVC, polyurethane, and synthetic rubber chains, have suffered from lower profitability due to slow demand growth and margin compression. Although IHS forecasts higher-than-historic global aggregated profits over the next five years, profitability is likely to vary by value chains and geographic regions.

Capital investment, which was at an all-time high in the last half-decade, is likely to begin decelerating this year. Low oil prices will challenge investors' ability to generate positive returns, and water supply constraints will limit investment in coal-rich western China. This shift may create a tight chemicals market before 2020.

However this slowdown in capital investment is unlikely to last long. IHS expects interest in conventional petrochemicals to resume near the end of the decade, supported by recent deregulation in upstream refining and crude imports. In the meantime, Chinese companies - both state-owned and private entities - have developed a growing interest in investing overseas. This trend will increase Chinese companies' influence in the global market.

Together, these trends point to a changed but still positive long-term market for Chinese chemical producers, following the hyper-growth era of the past 10 years. And those strong prospects are nothing to laugh at.

Learn more about how China's new "normal" economic conditions will affect the country's chemical industry.